Doha Deal Could Offer $100 Billion a Year to Global Economy if it Gets Done

The Doha round of global trade negotiations, which for seven years has failed to liberalize agricultural trade, may finally be close to its first conclusive action.

Global food prices, which have surged more than 80% in the past three years, are actually moving the talks forward by eradicating the tariffs and government subsidies that have deadlocked discussions so far. Those involved with the negotiations hope to have a deal done by the time President Bush vacates office in January 2009.

"I am completely convinced that we have it within our means, politically and technically, to finish the Doha round this year," Pascal Lamy, the World Trade Organization's director-general, said in a statement to the International Monetary Fund's International Monetary and Financial Committee.

Story continues below…

The World Bank estimates that a deal would add $100 billion a year to a weakening global economy by spurring trade and growth. Proponents of the WTO's Doha round also say an international compromise would stabilize food markets, lower tariffs, and spur food production.

The round originally began in November 2001, but negotiations have been derailed by the reluctance of wealthier countries to reduce government farming subsidies, and the unwillingness of poorer countries to open their markets to U.S. goods and services.

That may all be about to change, however, as soaring food prices are succeeding where negotiations have failed. Corn has surged 35% in the past year, while the price of rice has doubled. The price of wheat has climbed 181% since 2005.

As a result, food shortages and riots have erupted across the developing world, leading to the large-scale reduction of import duties. India, Indonesia, Peru, Turkey, and Mongolia are among the countries that have reduced or eliminated import tariffs on wheat, corn, soybeans, and flour. A total of 24 nations had reduced duties and value-added taxes as of April 9, the World Bank reported.

At the same time, agricultural subsidies in the United States and European Union are plummeting because farm supports are based on world prices. Subsidies in the United States are expected to fall below $8 billion this year, down from $13 billion in 2005, David Orden, a senior research fellow at the International Food Policy Research Institute told Bloomberg News.

Government assistance to farmers in the European Union fell by $15.7 billion (10 billion euros) from 2004 to 2006, according to the Organization for Economic Cooperation and Development.

Robert Zoellick, president of the World Bank, said that the recent spike in food prices could push 100 million people in low-income countries deeper into poverty, as food costs cut into already meager earnings. Rising prices have already caused rioting in Burkina Faso, Cameroon, Egypt, Indonesia, Mozambique, Senegal, Haiti and others.

"If ever there is a time to cut distorting agricultural subsidies and open markets for food imports, it must be now," Zoellick said. "If not now, when?"

Analysts say that eliminating price-depressing subsidies in wealthier nations could help developing nations boost their exports.

Still, if deeper cuts in farm subsidies are going to work their way through Congress, the United States will require more export opportunities abroad. Services, which account for 70% of the U.S. economy, only account for 30% of exports.

"We would like to see more ambition from the U.S. on agriculture. You know, that's the linchpin," Christopher Wenk, senior director for international policy at the U.S. Chamber of Commerce, told reporters."In exchange for that ambition on agriculture, we expect more" from developing countries in terms of opening their markets to U.S. goods and services.

The service offers put forward so far have been "absolutely embarrassingly paltry" according to Wenk, who also said that if a deal isn't done this year it would be substantially longer before a new U.S. administration made the Doha round a priority.

Trackbacks

[…] The Doha round of global trade negotiations began in November 2001, with the goal of liberalizing agricultural trade and encouraging growth. The World Bank estimates that a deal would add $100 billion a year to a weakening global economy, while others say an international compromise would stabilize food markets, lower tariffs, and spur food production. […]

[…] specifically pledged to avoid trade-inhibiting moves for the next 12 months and to work towards a Doha global trade agreement. I’ll believe the reality of the latter when I see it, but if the world’s statesmen are […]

[…] President Obama has done nothing to advance the South Korea and Colombia free trade agreements, stuck in Congress since 2007. He has also done nothing to revive the stalled Doha round of trade talks, though his global prestige is so high he could easily have done so. That would be no small achievement. The World Bank estimates that a deal would add $100 billion a year to global trade. […]

Profit Alerts

Never miss a profit pick again.

Choose from the topics below to receive our
money-making recommendations in real time.

Silver is essential to a balanced portfolio – this safe-haven asset will hold its value against geopolitical conflict and market volatility. And silver has real potential to see double-digit gains this year. Find out why silver prices are set to surge, plus the four best ways to invest in silver now. Enter your email below to get the report.

Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.